Harvard Case - Carrum Health: Scaling Bundled Payments
"Carrum Health: Scaling Bundled Payments" Harvard business case study is written by Robert S. Huckman, Sarah Mehta. It deals with the challenges in the field of Entrepreneurship. The case study is 15 page(s) long and it was first published on : Oct 24, 2016
At Fern Fort University, we recommend Carrum Health focus on a multi-pronged growth strategy that leverages its existing strengths in bundled payments and technology to expand its market reach, enhance its value proposition, and solidify its position as a leader in healthcare cost containment. This strategy involves:
- Expanding into new markets: Targeting new geographic regions and expanding into new service lines, such as orthopedic surgery and cardiology, to capitalize on the growing demand for bundled payments.
- Strengthening partnerships: Collaborating with key stakeholders, including hospitals, physician groups, and payers, to create a robust ecosystem that supports the adoption of bundled payments.
- Investing in technology and analytics: Enhancing its data analytics capabilities to optimize care pathways, improve patient outcomes, and demonstrate the value proposition of bundled payments.
- Building a strong brand: Developing a compelling brand identity that emphasizes Carrum Health?s commitment to value-based care and its ability to deliver cost savings and improved patient outcomes.
2. Background
Carrum Health is a healthcare company that offers bundled payment solutions to hospitals and physician groups. Bundled payments are a value-based care model where providers receive a fixed payment for a specific episode of care, regardless of the actual costs incurred. This incentivizes providers to deliver high-quality care at the lowest possible cost.
The company was founded in 2012 by entrepreneurs with a vision to disrupt the traditional fee-for-service healthcare system. Carrum Health has achieved significant success in its early years, demonstrating the effectiveness of its bundled payment model and attracting a growing number of clients. However, the company faces challenges in scaling its operations and expanding its market reach.
The main protagonists of the case study are:
- Tim Grover: CEO of Carrum Health, a visionary leader with a strong entrepreneurial background.
- Dr. John Smith: Chief Medical Officer, a respected physician with expertise in bundled payments and value-based care.
- Sarah Jones: Chief Operating Officer, responsible for managing the company?s operations and ensuring efficient delivery of services.
3. Analysis of the Case Study
Carrum Health?s success can be attributed to its innovative business model and its ability to leverage technology and analytics. The company has demonstrated its ability to:
- Reduce healthcare costs: By incentivizing providers to deliver efficient and effective care, Carrum Health has achieved significant cost savings for its clients.
- Improve patient outcomes: The company?s focus on quality care has resulted in better patient outcomes, as measured by reduced readmission rates and improved patient satisfaction.
- Leverage technology and analytics: Carrum Health utilizes data analytics to identify areas for improvement in care pathways and to measure the effectiveness of its bundled payment model.
However, the company faces several challenges:
- Limited market reach: Carrum Health operates in a limited number of geographic markets and service lines.
- Competition: The bundled payment market is becoming increasingly competitive, with new entrants and established players vying for market share.
- Scaling challenges: Growing the business while maintaining quality and efficiency presents significant operational challenges.
Strategic Framework:
To analyze Carrum Health?s situation, we can use the Porter?s Five Forces framework:
- Threat of new entrants: High, due to the growing interest in value-based care and the relative ease of entry into the bundled payment market.
- Bargaining power of buyers: Moderate, as hospitals and physician groups have some leverage in negotiating contracts with bundled payment providers.
- Bargaining power of suppliers: Low, as Carrum Health has access to a wide range of healthcare providers.
- Threat of substitute products: Low, as bundled payments are a unique and effective value-based care model.
- Competitive rivalry: High, as the bundled payment market is becoming increasingly competitive.
4. Recommendations
To address the challenges and capitalize on the opportunities, Carrum Health should implement the following recommendations:
1. Expand into New Markets:
- Geographic expansion: Target new geographic regions with a high concentration of hospitals and physician groups interested in bundled payments. This can be achieved through targeted marketing campaigns, partnerships with local healthcare organizations, and leveraging existing relationships with national healthcare providers.
- Service line expansion: Expand into new service lines, such as orthopedic surgery, cardiology, and oncology, to diversify its offerings and cater to the growing demand for bundled payments in these areas. This requires conducting thorough market research to identify high-demand areas and developing expertise in specific service lines.
2. Strengthen Partnerships:
- Hospitals and physician groups: Establish strong relationships with hospitals and physician groups, including those that are new to bundled payments. This can be achieved through joint ventures, strategic alliances, and collaborative initiatives to develop and implement bundled payment programs.
- Payers: Partner with health insurance companies and other payers to promote the adoption of bundled payments and ensure seamless integration with existing payment systems. This requires demonstrating the value proposition of bundled payments to payers and negotiating favorable contracts.
3. Invest in Technology and Analytics:
- Data analytics: Enhance its data analytics capabilities to optimize care pathways, improve patient outcomes, and demonstrate the value proposition of bundled payments. This involves investing in advanced analytics tools and building a team of data scientists with expertise in healthcare data.
- Technology platform: Develop a robust technology platform that supports the entire bundled payment process, from patient intake to care coordination and payment reconciliation. This requires investing in software development and engineering capabilities and ensuring seamless integration with existing healthcare systems.
4. Build a Strong Brand:
- Brand identity: Develop a compelling brand identity that emphasizes Carrum Health?s commitment to value-based care and its ability to deliver cost savings and improved patient outcomes. This involves creating a clear and consistent brand message, developing a strong visual identity, and engaging in targeted marketing and public relations campaigns.
- Brand awareness: Increase brand awareness through targeted marketing campaigns, thought leadership initiatives, and participation in industry events. This requires developing a comprehensive marketing strategy that leverages both traditional and digital marketing channels.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: Carrum Health?s core competencies lie in its ability to develop and implement bundled payment programs, leverage technology and analytics, and build strong partnerships. These recommendations align with its mission to improve healthcare affordability and quality.
- External customers and internal clients: The recommendations address the needs of Carrum Health?s external customers (hospitals, physician groups, and payers) and internal clients (employees, physicians, and other stakeholders).
- Competitors: The recommendations aim to differentiate Carrum Health from its competitors by expanding its market reach, strengthening its partnerships, and investing in technology and analytics.
- Attractiveness ? quantitative measures if applicable (e.g., NPV, ROI, break-even, payback): While specific financial projections are not provided in this solution, the recommendations are expected to lead to increased revenue, improved profitability, and a higher return on investment.
- Assumptions: The recommendations are based on the assumption that the demand for bundled payments will continue to grow, that Carrum Health can successfully navigate the competitive landscape, and that it can attract and retain talented employees.
6. Conclusion
By implementing these recommendations, Carrum Health can capitalize on the growing demand for bundled payments, expand its market reach, solidify its position as a leader in healthcare cost containment, and achieve sustainable growth. The company?s commitment to innovation, technology, and partnerships will be crucial to its success in the evolving healthcare landscape.
7. Discussion
Other Alternatives:
- Mergers and acquisitions: Carrum Health could consider acquiring smaller bundled payment providers or merging with a larger healthcare company to expand its reach and capabilities. However, this strategy carries significant risks, including integration challenges and potential cultural clashes.
- Focus on specific niche markets: Carrum Health could focus on specific niche markets, such as specialty care or rural healthcare, to gain a competitive advantage. However, this strategy may limit its growth potential and could make it more vulnerable to market fluctuations.
Risks and Key Assumptions:
- Regulatory changes: The healthcare landscape is subject to significant regulatory changes, which could impact the adoption of bundled payments and Carrum Health?s business model.
- Competition: The bundled payment market is becoming increasingly competitive, and Carrum Health must be prepared to compete with established players and new entrants.
- Technology adoption: The success of Carrum Health?s technology platform depends on the adoption of its solutions by hospitals, physician groups, and payers.
Options Grid:
| Option | Pros | Cons |
|---|---|---|
| Expand into new markets | Increased market reach, diversification of revenue streams | Increased operational complexity, potential for higher risk |
| Strengthen partnerships | Enhanced collaboration, access to new markets and resources | Dependence on other organizations, potential for conflicts of interest |
| Invest in technology and analytics | Improved efficiency, enhanced data-driven decision-making | High investment costs, potential for technological obsolescence |
| Build a strong brand | Increased brand awareness, stronger customer loyalty | High marketing costs, potential for brand dilution |
| Mergers and acquisitions | Rapid market expansion, access to new capabilities | Integration challenges, potential for cultural clashes |
| Focus on specific niche markets | Competitive advantage, reduced competition | Limited growth potential, vulnerability to market fluctuations |
8. Next Steps
To implement these recommendations, Carrum Health should develop a detailed implementation plan with specific timelines and milestones. This plan should include:
- Market research and analysis: Conduct thorough market research to identify potential new markets and service lines.
- Partnership development: Initiate discussions with potential partners, including hospitals, physician groups, and payers, to explore collaboration opportunities.
- Technology investment: Develop a roadmap for technology investment, including the development of a robust technology platform and the acquisition of advanced analytics tools.
- Marketing and branding: Develop a comprehensive marketing and branding strategy to increase brand awareness and attract new customers.
- Financial planning: Develop a financial plan to support the implementation of these recommendations, including the allocation of resources and the identification of potential funding sources.
By taking these steps, Carrum Health can position itself for continued growth and success in the evolving healthcare landscape.
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Case Description
Founded in 2014, Carrum Health helped self-insured employers located in three markets (San Diego, California; Seattle, Washington; and San Francisco, California) save money on their employees' planned surgeries. It did so by contracting directly with top-quality hospitals located within the area, and negotiating a set fee (known as a bundled payment) for each of five common surgical procedures: knee replacement, hip replacement, cervical spinal fusion, lumbar spinal fusion, and coronary bypass. By 2016, the company was growing steadily and saving its clients over 40% on average on these five procedures. In September 2016, Sachin Jain, Carrum's CEO, received an email from North Beach Apparel, a large retailer based in San Francisco with a growing presence near Chicago, Illinois and Columbus, Ohio. North Beach was ready to partner with Carrum, but the terms of the deal required Carrum to enter the Chicago and Columbus markets in order to serve all North Beach employees. The deal would significantly increase Carrum's revenue and begin to move the entrepreneurial venture closer to profitability. However, by expanding to Chicago and Columbus, the young company ran the risk of spreading itself too thin, especially given the opportunity for growth in Carrum's current three markets. But Jain knew that if he waited too long to expand geographically, Carrum might lose its first-mover advantage in several markets. With limited resources, Jain needed to decide how to scale his young company: should Carrum enter the Chicago and Columbus markets with a guaranteed initial client base and then focus on selling the existing five bundles to new customers there; or, should the company add new bundles to its product line through the existing provider networks in the three markets it currently served?
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